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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JANURAY 2011
VOL 2, NO 9
in ECM. A 2-lags structure is employed, as apposed to a 4-lag structure commonly used by
other researchers, due to the limited sample period. Subsequently, the insignificant variables
were dropped in order to get a parsimonious model. The results of the preferred parsimonious
model are presented in Table 3.
In the parsimonious ECM specification, several features of the regression results stand
out. The coefficient of ECTt-1 is significant and carries the correct sign (negative). The
coefficient of ECTt-1 indicates the speed of adjustment and in this case the high significant
coefficient of ECTt-1 implies a fast adjustment towards the long run equilibrium. The
significant coefficient of ECTt-1 suggests that, on average, there is a 54 percent adjustment in
the current period (t) to the disequilibrium in the previous period (t-1). Growth rate of the
economic adjusts 54 percent due to changes in short run variables when they are certain that
the changes in the variables are permanent in the next period (after a year).
Table 3: Results of ECM for Short Run Dynamics
Dependent Variable �NYt
Independent
Variable Coefficient t-Statistic Prob.
C 0.0924 6.1535 0.0000
�NYt-1 -0.1584 -1.8597 0.0770
�Kt 0.4650 8.4041 0.0000
�Lt 0.5493 1.9359 0.0665
�Ht-1 0.2147 1.8924 0.0736
�CMt -0.0712 -2.3748 0.0272
�MXt 0.1645 1.7482 0.0816
�MXt-1 0.0034 0.0741 0.9416
�SMXt -0.0658 -3.0607 0.0059
�PXt-1 0.0032 0.1753 0.8625
ECTt-1 -0.5430 -4.4595 0.0002
R 2 0.871
Adjusted R 2 0.818
F-statistic
14.4804
0.0000
The physical capital has a positive contemporaneous effect on economic growth. On average,
a 1 percent increase in physical capital leads to a 0.465 percent increase in economic growth
within one year. The labor variable is significant and appears to have a positive
contemporaneous effect on economic growth and on average 1 percent increase in labor shows
0.549 percent increase in economic growth.
On average, a 1 percent rise in one year lagged human capital leads to a 0.21 percent
increase in economic growth within a year. However, the results of parsimonious ECM also
indicate that capital imports have negative significant impact on economic growth. The
current year manufacturing exports are significant and have positive effect in explaining
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